Lottery money takes on new role as state budget cuts loom

By definition, the lottery is a gamble. There’s no guarantee of winning, no assurance that you’ll look back on your ticket purchase without regret.

Sure, it can pay out big sometimes, but you could just as easily come up empty. And in North Carolina, for the school districts the education lottery helps fund, it turns out the story of what happens to that money might be much the same.

For the last five years, regulations on what can be done with lottery money have been pretty strict. But with state and local budgets in crisis, the General Assembly last year lifted some of those strictures, allowing schools to pay other expenses that were losing state funding with lottery money; a consolation prize for losing the big pot. So many districts started clutching money they once spent freely, fearing state budget cuts that are just over the horizon and wondering if they’d made the right choices with lottery money given to them in the past.

In Swain County, lottery money has always gone to debt service, paying down notes taken out for school improvements. County Manager Kevin King said that’s what they’ll continue to put those dollars toward for the foreseeable future. The same is true for Macon and Jackson counties.

In Haywood County, however, they’ve taken fuller advantage of what the funding rules allow. The way lottery money allocation works today is pretty simple: school districts get a percentage funding based on their ADM, average daily membership, which is basically how many students are attending their schools. Districts used to get extra money based on their property tax rates, which put western counties with historically low rates at a disadvantage. However, after years of lobbying by school officials, the General Assembly removed that inequity during its last session.

Lottery money ‘icing on the cake’

But regardless of where it comes from, lottery funds have, in the past, been earmarked only for capital improvements. That means new buildings, repairs to existing facilities and, as in Swain County, debt service for similar projects that have already been paid for.

Back in Haywood County, they decided to use their funds to install artificial turf on their sports fields, a project that’s taken their yearly lottery funds, which average about $600,000 annually, since they started receiving them.

After last year, though, when the extent of state budget woes became increasingly clear, Assistant Superintendent Bill Nolte said they started saving as much of that money as they could, aware that the state would have to find $3.7 billion dollars in cuts somewhere, and schools might be first on the chopping block.

“You … want to save the lottery money because it’s the only source that you have as an emergency source,” said Nolte, noting that, after paying the remaining two turf payments that are still outstanding, Haywood’s lottery fund balance would leave about $600,000 to fund teaching positions or address liability issues and emergency facility needs, which is as low as he’d like to see the fund get.

“We’re down pretty close to a pretty uncomfortable level of having a reserve there,” Nolte said.

But when asked whether, retrospectively, the turf still seem like a sound decision, Nolte defended the choice. He said the school system used the money for one of the few things it was allowed to spend it on.

“It [lottery funding] was never intended for emergency crises, it was never intended to pay for teachers, it was never intended to buy paper. That [capital expense] was the only thing we could spend it on at the time. It was a very logical expenditure,” said Nolte. “If we had a crystal ball and we knew that two to three years later we would be in an economic crisis, we may have not done that project.”

But, as Nolte points out, crystal balls were in short supply, and in what seemed like a healthy economy, they would have been decried for saving the money then.

“Back when we did the fields, there was no opportunity to spend the funds in another manner. If we had saved those funds back then, people would have said, ‘what are you saving for?’” said Nolte. “At the time that we made those expenditures it was a very popular decision.”

Now, however, there is no decision more popular than holding onto what you’ve got, in case things continue to decline.

Hold on tightly

That’s the opinion voiced by several commissioners at a recent Haywood County Commissioners meeting, where they expressed concern about what’s happening to the county’s lottery money.

Commissioner Bill Upton, who was formerly a principal and superintendent in the Haywood County school system, questioned school officials on the wisdom of using lottery funds to fix decrepit bleachers instead of saving the money in case it’s needed for teacher positions next year. Commissioners eventually approved the bleacher repairs, which had been flagged as a safety hazard by the school’s insurer for several years, but their reluctance to dole out lottery money on non-essentials was clear.

“The ballgame’s changed and that’s my big concern,” said Upton in an interview. “In the past, you know, you had to use lottery monies for projects and all. I think that’ll change.

“The unknown is what bothers me, and you hate to make decisions that will come back and hurt you this summer [when the state budget is set].”

According to North Carolina State Superintendent June Atkinson, a lot of districts around the state are thinking along the same lines. She said that few chose the option to use lottery money for teacher funding or other non-traditional uses last year. There were more hoops to jump through, including extra scrutiny at the local level, and there was still some federal funding available that gave many districts a buffer for state losses.

But this year, said Atkinson, those federal appropriations will be long gone, to the tune of $1 billion statewide, and the $3.7 billion hole at the state level is going to hit schools hard. This year, she expects many more districts to take the General Assembly up on any offer of unrestricted lottery funding they choose to make.

“In the leadership in our schools, people are making a concerted effort to stretch every dollar as far as they can go. When those federal dollars dry up, I’m sure school districts will be looking at those lottery funds,” said Atkinson.

However, she doesn’t think the lottery will ever become a staple to school funding — no matter how many restrictions are removed — because it’s just not enough to make up for what’s being lost.

“The lottery really is just icing on the cake,” said Atkinson, “because it is an unstable source of dollars. It changes based on the whims of people that buy lottery tickets … the percentage of the lottery dollars is such a small amount of money in comparison to the total amount [needed for school funding].”

And, just as in other retail sectors, those ticket-buying whims have been severely curtailed by the economy. Lottery revenue saw about a $44 million drop last year, and if those patterns continue, schools will have even fewer dollars to deal with.

But as for the money that’s left, Atkinson said she’s confident that lottery funding in the future, at least in the short-term, will surely be re-routed to needs other than capital projects, which would leave the state’s school facilities languishing.

Feeling the budget squeeze

Nolte said they’re already experiencing that squeeze in Haywood County.

“We swallowed very hard and did not do a building replacement at Waynesville Middle because we knew we might need that fund for schools or teachers,” said Nolte. That decision, he added, was pretty unpopular.

But they’ve been told to brace for a 10 to 15 percent cut from the state this year, so they’re hanging onto what they’ve got.

Nolte said he knows people might look at Haywood’s past lottery decisions as questionable, but would counter that argument by pointing out that the school system has long been recognized as fiscally responsible, running every project on time and on budget.

“I know that people want to make the arguments of bleachers versus teachers, or they want to make the argument of athletics versus academics, or they want to make the argument of don’t do anything to buildings, just keep people in jobs,” said Nolte. “But I hope people understand that we make the best decisions we can make with the information we have at the time.

“It’s real easy to second guess, and I just hope that people understand that we’ve got a long history of making very good decisions when it comes to capital expenditures. We’re taxpayers too, so we want to be very prudent with the revenues that are allocated to the school district.”

Statewide, Superintendent Atkinson hopes that lottery funds will help schools survive, but concedes they are a band aid on a hundred bullet wounds, and schools will have to shore up for a hard hit that’s coming soon, prioritizing student success over all else in the face of a bleak financial future.

“We’re at the point where we can’t make cuts without harming students. North Carolina ranks about 42nd in the nation as far as school funding. We’ve mad a lot of progress, and I just hate to see our not being able to continue that progress,” said Atkinson. “Money does matter.”